Mortgage After Chapter 7 Bankruptcy On Home Loans

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This BLOG On Mortgage After Chapter 7 Bankruptcy On Home Loans Was UPDATED And PUBLISHED On April 11th, 2020

What does mortgage mean after Chapter 7 Bankruptcy regarding home loans

Looking for a Mortgage After Chapter 7 Bankruptcy?

  • For many individuals, filing Chapter 7 Bankruptcy is closing one chapter in life and opening new doors of opportunity
  • There is a stigma attached to filing and going through a Chapter 7 Bankruptcy
  • For many, it is a lack of understanding of what drove someone to that point
  • Individuals may become reluctant to apply for any type of credit after a Chapter 7 Bankruptcy Discharge
  • This is because they fear rejection and become embarrassed

In this article, we will discuss and cover Mortgage After Chapter 7 Bankruptcy On Home Loans.

Steps In Qualifying For Mortgage After Chapter 7 Bankruptcy

Many potential home buyers think mortgage after Chapter 7 Bankruptcy is not possible so they do not even try. Every loan program has its own waiting period requirements to qualify for a mortgage after Chapter 7 Bankruptcy discharged date.

There are two parts in when qualifying for mortgage after Chapter 7 Bankruptcy.

  • If you just file Chapter 7 Bankruptcy, there is a two-year waiting period to qualify for a FHA Loan after the discharged date
  • There is a four-year waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date
  • Waiting period is 3 years after discharged date on USDA Home Loans
  • If you had a mortgage as part of a Chapter 7 Bankruptcy, there is a three year waiting period from the recorded date of housing event on FHA and USDA Loans
  • There is a two year waiting period after Chapter 7 Bankruptcy discharged date to qualify for VA Home Loans

Housing event is the following:

  • foreclosure
  • deed in lieu of foreclosure
  • short sale

Mortgage Included In Bankruptcy Guidelines

There are mandatory waiting period after the Chapter 7 Bankruptcy discharged date to qualify for a FHA, VA, USDA, and Conventional Loans:

  • If you had a mortgage included Chapter 7 Bankruptcy, there is a four-year waiting period to qualify for a Conventional Loan and VA Loans after the discharged date of bankruptcy
  • The deed of the property that was included in the Chapter 7 Bankruptcy can be recorded after the discharged date of the Chapter 7 Bankruptcy
  • This rule is different than those of FHA Loans, and USDA Loans

If the mortgage included in Chapter 7 Bankruptcy was a VA Loan, it may affect VA Entitlement on new VA Mortgage.

Can A Person Qualify For FHA Mortgage After Chapter 7 Bankruptcy?

Can A Person Qualify For FHA Mortgage After Chapter 7 Bankruptcy?

Can a person qualify for a FHA Mortgage After Chapter 7 Bankruptcy?

  • The good news to this question is YES!
  • HUD, The United States Department Of Housing And Urban Development which is the parent of the Federal Housing Administration or FHA

HUD allows borrowers to obtain a qualified mortgage that is insured by HUD, called FHA Loans, after satisfying a two year mandatory waiting period after a Chapter 7 Bankruptcy Discharge Date.

Preparing For FHA Mortgage After Chapter 7 Bankruptcy

What should I do during the two-year waiting period to prepare yourself for a mortgage after Chapter 7 Bankruptcy?

  • A person who has had a prior Chapter 7 Bankruptcy Discharged should make sure that they responsibly rebuild credit
  • Re-establishing credit should be done immediately after the discharge of the Chapter 7 Bankruptcy
  • This can be obtained by opening a secured credit card or obtaining an unsecured credit card
  • Obtaining an unsecured credit card right after a Chapter 7 Bankruptcy Discharge will most likely not happen
  • Most unsecured credit card companies will require a credit score of at least a 700 FICO
  • However, borrowers can start re-establishing credit by getting secured credit cards
  • Preferably three to five with at least a $500 credit limit or more
  • Secured credit cards are the best, easiest and fastest tools in re-establishing credit and improve credit scores after a Chapter 7 Bankruptcy
  • During this period, consumers should show responsible use of credit
  • This is easily accomplished by making sure to make regular payments and never being 30 days late

To obtain the highest FICO score advantages, it is important that credit card usage stays under 10% of the credit limit.

Mortgage After Chapter 7 Bankruptcy With Late Payments After Discharged Date

The majority of lenders will not approve anyone for an FHA loan if the borrower has had any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.

  • This holds true no matter how high their credit scores are
  • Consumers need to religiously monitor their payment history after a Chapter 7 Bankruptcy Discharge Date
  • Make sure they do not have any late payments period
  • There are lenders that will accept one or two late payments after a Chapter 7 Bankruptcy discharge, foreclosure, deed in lieu of foreclosure, or short sale

But the majority of them will require a 7 year waiting period after any late payments after a bankruptcy and/or housing event.

Late Payments After Bankruptcy And Housing Event Is Considered As Second Offender By Most Lenders

Why late payment after bankruptcy and housing events are considered by most lenders as a second criminal

It is extremely important that there are not any late payments.

  • It is also important not to have new collections accounts show up after bankruptcy and/or housing event
  • Filing for bankruptcy can be life-changing and difficult

However, individuals who demonstrate responsible credit use and an established payment history during the two-year waiting period, should not have any issues obtaining a mortgage for a home purchase.

About The Author

Gustan Cho is the Editor In Chief of Gustan Cho Associates Real Estate And Information Center as well as a licensed mortgage loan originator.

  • Gustan Cho is an expert in helping home buyers with less than perfect credit scores and higher debt to income ratios
  • GCA Mortgage Group specializes in originating, processing, underwriting, and funding FHA, VA, USDA, and Conventional Loans with no overlays Gustan Cho Associates has NO FHA Investor Overlays
  • Over 70% of Gustan Cho Associates borrowers are folks who were told that they do not qualify with their lender they went to due to overlays
  • For example, HUD requires a minimum credit score of 580 FICO to qualify for a 3.5% down payment FHA Loan
  • However, if a home buyer visits his or her local bank and applies for an FHA loan with a 580 FICO credit score, the banker will tell them that they do not qualify for an FHA loan with them
  • This is because most banks have FHA Investor Overlays on credit scores where the minimum credit score they require is 640 FICO
  • The team at Gustan Cho Associates of mortgage loan originators will be able to help borrowers get FHA Loans approved
  • We are known nationally due to its no lender overlays

Please contact Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com if you need to consult with a loan officer with no lender overlays on FHA, VA, USDA, and Conventional Loans.

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